April 20, 2024 Weekly Recap & Good Reads
Last week in Random Walk+Good Reads, all in one email
Programming note: next week is Passover, so Random Walk will be mostly radio silent.
Finally, another request (plea?) to upgrade to a paid subscription. If the paid tier doesn’t accelerate a bit, I will have to substantially refactor my efforts.
👉👉👉Reminder to sign up for the Weekly Recap only, if daily emails is too much. Find me on twitter, for more fun.
Last week in Random Walk . . .
👇Here’s what Random Walk published last week 👇
Big Stories of the Week
10 Year yields for real this time.
The market continued to absorb the reality of longer for higher this week. All the major stock indexes trimmed a bit. 10 year yields are approaching their October 2023 highs (which were the highest 10 years had been since 2007), but the 10-2 stays inverted, in what is now the longest inversion in history. Amazingly enough, the banks are doing pretty well, and the labor market stays super-tight, but there’s still lots of weirdness, e.g. strong dollar+strong gold, hiccups in semi demand, while AI demand booms, freightcessions while ecommerce booms, and manufacturing activity that’s up and down.
Analysis & Ideas
Macro & Markets
Radical theory on Wall St. “High rates actually cause inflation” is becoming a thing. How does it work? It’s a little vague, but the gist of it is all the interest income is goosing spending. It’s true that there is a lot of interest income, but there isn’t much evidence that interest income is buoying spending all that much. Even if there was, it’s still not true that high rates are causing the expansion—the expansion would be the persistent borrowing of Uncle Sam, regardless of the price. Presumably if rates came down, everyone else would borrow-and-spend more too, and that would outweigh the interest income. Personally, it seems like a theory tailor-made for people who want rates to come down (including the administration), and now that inflation isn’t helping their case, they’re going to go with this one instead.
Higher yields create a persistent problem for banks that depend on deposits. More color on the longer-term challenge to the business of banking (or the flipside of all that interest). It’s hard to borrow-short-to-lend-long, when the cost of short is higher than the benefit of long.
Biden calls for tariff on Chinese steel. We Build-Back-Better and they dump.
IMF says it’s time to start worrying about public debt. Really? Are you sure? Now? Maybe we should check back later?
Mohammad el Arian on supply constrained macro (and here). Former PIMCO CEO notes that macro is different now because inflationary pressure is a scarcity problem. Sounds familiar.
Philly Fed on rising credit card delinquencies. Delinquencies are up, and new mortgages are riskier. This is lagging data, so nothing new.
Can I speak to your supervisor? NY Fed looks at some recent research on the impact of bank supervision on lending and risk. Nothing surprising, but a useful resource.
Capital Allocation & Investment Strategies
Franklin Templeton shifts to private credit as mutual fund business declines. Alts are the new mutual funds. The supply of risk is trying to make sure that demand keeps up.
Annie Duke on Why Great Investors Are Great Quitters. The poker queen is always fun.
Blackstone warns that PE cannot return capital ‘overnight’. Why? Are people asking? See also Pension Funds are pulling hundreds of billions from stock. Asset prices have stayed remarkably resilient because no one has needed to sell. But LPs do eventually have liquidity needs. And don’t forget PE’s titans are told to cough up their own cash. Because you can’t keep hitting up your LPs without putting some more skin in the game. See also also More companies are defaulting (again) and Tech’s Cash Crunch sees ‘lender on lender violence’
Real Estate & Migration
America is uniquely ill-suited to handle a falling population. Economist-style observations of the aging/tax-burden death spiral that happens when payees begin to severely out-number payors. The Economist claims that America is “uniquely ill-suited” to handle the challenge because people are free to leave for more dynamic states. If only younger folks were more chained to their desks, then they would have no choice but to suffer the myopia and poor judgment of their “leaders,” and the problem would be less pronounced. Personally, I think the problem is the opposite: it’s far too easy for “leaders” to offload the burden of their myopia and poor judgment (and not easy enough for ordinary citizens to opt-out of those terrible choices). By the time chickens finally come home to roost, it’s too late. If only there was a regulatory body dedicated to protecting consumer choice.
KC’s mayor welcomes NYC’s migrants to fill jobs. IRA-subsidized battery plant needs migrant workers to do the work. Can’t stop, won’t stop.
Roma Termini: Why cities both make us and break us. Information dense, and a winding tale through history, as per always, with Razib Khan. Tl;dr cities accelerate cooperation, culture and empire . . . as well as discord, disease and decline. As RW has said many times before, “density is neither good or bad.”
Consumer
CA insurance regulators chase two more carriers from the state, making matters worse for consumers. Well, that’s not the headline, but it’s the story. Once again, the lag between cause and effect means regulators do damage well before they get around to fixing it (and they still blame something else).
Okta’s Businesses at Work. A report on the software stack of over 18K Okta customers. Microsoft is very popular among Fortune 500, but Google Workspace dominates the newer ones. AWS is everywhere and Canva is a rocket ship.
What does Alt Data say about Netflix’s European Adventure? That it’s good, I suppose.
Energy
Amazon became the largest private EV charging operator. Incredible amounts of money and effort by one of the most sophisticated logistics and infrastructure companies in the world just to get its delivery trucks strapped to the grid, and it’s still a WIP.
What surging AI demand means for energy markets. Long and interesting interview with a 10+ year vet of data center energy management, etc. One interesting bit is that because data centers don’t employ many people, they can face political headwinds, relative to lower-yield (but more worker-intensive) grid uses.
AI
Meta introduces next gen custom chips. In-house chips were inevitable, I suppose.
Tech & Venture
Khosla’s Predictions. I think maybe I was expecting more, but it’s Khosla, so I guess it’s worth a look.
An account of Banking-as-a-Service (“BAAS”) and how it works. BaaS has been in the crosshairs recently, and I’ve always had a hard time pinning down where in the ecosystem these companies operated, and I found this overview helpful.
People & Culture
The anti-fragile Brendan Eich. Commemorating the 10-year anniversary of when the CEO of Mozilla was forced to resign because he donated to political causes consistent with his faith. Good thing that Eich is a big believer that small groups of talented people can make enormous progress by being principled, hard-working and accountable, so rather than make excuses or cry about it, he just keeps on building.
A new strategy for aging and bridging generational divides. Older folks hanging out with high school kids, so they can both learn a thing or two. Novel concept, but sounds like a good one.
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